Banks Braced For More Mortgage Defaults

October 20, 2022

A major UK bank has said that it is taking steps to prepare for an increase in customers who default on their mortgage repayments, as the interest rate rises have driven up the rates of a fixed-rate mortgage to an average of 6%. Santander UK is shoring up reserves against potential future defaults, The Guardian reports. 

As the cost of living crisis is compounded by higher energy bills and stagnating wages, even borrowers who have passed stringent affordability criteria for a mortgage may begin to struggle with monthly repayments. 

NatWest is another major bank which is taking precautionary measures, as it spends a further £2m on dedicated debt advisors for business customers. It has already established links with debt charities to help customers through the coronavirus pandemic. 

Anyone who is experiencing difficulty meeting mortgage repayments is advised to contact the lender in the first instance. They may be able to offer a few months of lowered repayments, or even a mortgage holiday, while you stabilise your finances. 

The worst course of action is to bury your head in the sand, and incur late or missed payments on your credit record. This will store up more problems for the future, when you need to renew your mortgage deal, or apply for another type of credit source. You may even become vulnerable to having your home or property repossessed. 

Mike Regnier, head of Santander UK, told The Guardian: “We’ve seen a very slight increase, but not yet a significant increase, in the number of customers who are falling behind on mortgage payments or … payments on cards, or loans or overdrafts.”

He added: “The Covid provisions that we had, we’ve removed, and we’ve replaced those now with provisions that relate to the high inflation environment that we’re now facing.” 

“There are lots of customers who … will be paying significantly more than they were doing previously, and that will come as a shock. And some people will find that very difficult. We’ll be there to support them as well.”

For borrowers who have already fallen into debt, it is important to seek independent debt advice as soon as possible. It may feel like and overwhelming and scary situation, but there are professional advisors who have dealt with all manner of complex financial situations, and will be able to reccomend the best course of action.

For example, those with some income source might benefit from a Debt Management Plan (DMP). An advisor will work with you to draw up a monthly household budget, and establish what level of loan and mortgage repayments you are able to make. 

The advisor will then work to establish an affordable payment agreement with your creditors. In most cases, the creditor will agree to accept the reduced payments until you can meet the end of the loan term. Some creditors may also reduce or stop interest charges.

If you would like to talk to IVA mortgage specialists, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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